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Middle Tennessee | It took me all day, I hope one of you guys takes a couple seconds fun in the effort,
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In spite of their nature, corn traders were satisfied this week to rattle prices around within last week’s range. As farmers finish up planting this year’s crop, acreage concerns, steady energy prices, and firm export demand (even if not from China) have been enough to curb the aggressive selling that kicked in on April Fool’s Day. In fact the corn market has held stable for all of May, the only way for traders to make money over that period is to buy in the low $3.60s and sell in the high. Many continue to insist that farmers have lots of corn, and that they must sell even at current depressed prices which put them at a loss on the production. Personally, I’m not sure how well market analysts do by insisting on the marketing behavior of farmers, who I bet can be a determined lot. But with Managed Money willing to press the short side and massive global production out of the US, South America, and China recently, the market tends to apply pressure until one side or the other can bear no more. Projections of price much lower than today’s sound slightly hysterical to me, but without a drought showing up quickly in the Midwest, it’s hard to anticipate much of a rally either.
On Monday, wheat prices extended last Thursday’s big rally up to $5.30, and then spent the rest of the week largely probing about Monday’s range. Managed Money has turned ambivalent, with buyers from that category showing up on tonight’s CFTC report, looking to chase out shorts of their own kind. Catastrophic downpours in the Southern Plains have arrived just as forecasters said, with a few inches to go yet. Diseased and quality-degraded crops are like deliveries on futures: it’s not easy to discern if they’re bullish or bearish. If the culminating marketing year for European wheat is any indication, maybe the later.
Whatever the size and grade of the US winter wheat crop, with another great crop likely coming out of the Euro zone, the demotion of the US this year from its status of leading exporter does not look like a one-year blip. In turn, the Euros will have to compete with the Russians and Ukrainians. I don’t want to be too negative on the wheat here, global supplies are stable with a decline forecast this year by the USDA. And there likely will be a great global trade in wheat this year, even with terror and chaos and tragedy radiating throughout the Middle East (the combined wheat imports of Egypt, Algeria, Saudi Arabia, Iran, Lybia are enormous, Syria not so much these days…I recently saw a Reuters post describing how 50k tons of wheat were held off Yemen’s shore, the boat was unable to port and unload, I don’t think it ever did). But loaders at those export points will be hustling for business, and I don’t think they’re flat pricers. The USDA’s Daily Grain Review today reported at 70-cent pullback of soft-red wheat basis at the Gulf as an example of that maybe.
Now I’ve saved all my piety and indignance for my observations on the soybean market today. Those observations are uncolored by the fact that I got sucked into a mini-soybean today at a price too embarrassing to say, but solidly below $9.40. I try to avoid the soybean market like it was Ebola these days, but sometimes I can’t help myself. The ’14 US harvest killed the soybean market, and the subsequent South American crop a few months later killed the correction. The only signs of life out of bulls since then emerged in the aftermath of the Quarterly Stocks report a couple months back. And those signs are no more, as there appears to have been an outbreak of a mutated H5N8 among soybean bulls. In the month of May,
prices got hammered back down, and farther. A good 75-cents worth in 3 weeks.
But the Stocks report did make one thing clear, we’re edging toward “pipeline” supplies, or at least some small multiple of it. Everything has changed in the soybean market except one thing, month after month, quarter after quarter, demand for US supply exceeds projections. This fact has had to compete with a very highly-estimated current South American crop, and the potential for a big gain in US acreage. Consider please those acres are not yet planted, but it’s a very dynamic situation, as they say. Nonetheless, as we edged deeper into the marketing year, price inversions returned after a post-harvest carry market. Sure it’s not like the good old days, with $2 spreads, only a tenth of that now. But the availability of soybeans in the countryside is not really clear at the moment. I suppose the crushers could take their long summer vacation early this year, but they usually at least work up until July. And the relative strength of meal and oil—at least this week—compared to soybeans suggests there may still be money to be made with soybeans.
So back to today, I—and probably a lot of other people—were expecting the usual Friday light trade. Maybe sellers could poke a couple more holes in support, but they’d take a little mid-session profit, and get an early start on the long weekend. Well, it turns out those sellers worked the full shift, and even perhaps brought in some extra help late in the day. Prices were ground up throughout the day, with a huge volume spike right at the close. The result was a violation of continuous lows, but not of contract lows, leaving a fat target 25 cents below.
The obvious question though, is why did these hedge funds guys (it’s hard to believe anyone else is pushing the market around like that) hit the market so hard, and so quickly, late on a Friday, before a long weekend? Why not take it easy, book some profits, and get back to making money Monday morning? Besides a big bearish dollar swing, news Friday was supportive, with ongoing and deepening labor issues paralyzing export operations at Rosario, Argentina. It looked like a last-ditch sweep for stops below the market, and I would not be surprised to see those very same fellows get in Monday night and start covering those shorts before most get back to work Tuesday morning. I remind that on 1/30 and 4/10 (both Fridays) the soybean market broke consolidation levels, and turned ‘bout face for sustained buying sprees the very next session. | |
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Another Friday in the Bean Market
